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Is IR35 still relevant?

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After nearly eight years of IR35 legislation, perhaps it is useful to step back and ask the question ‘where are we now with IR35?’

A place to start would be to study the legal judgements, but a closer inspection of these generally leads to confusion, as there are so many inconsistencies with them. There are also many unrecorded IR35 cases that never reach the courts for which the outcome is not in the public domain.

To distil IR35 to its base level it all boils down to an employment status argument. The most significant case in this area is the Ready Mixed Concrete case of 1968 and it is worth revisiting this judgement before any discussion around IR35 takes place

[Ready Mixed Concrete (South East) Ltd. v. Minister of Pensions and National Insurance [1968] 2 QB 497; [1968] 2 WLR 775]

Mr Justice McKenna said:

"I must now consider what is meant by a contract of service".
A contract of service exists if the following three conditions are fulfilled:

1. The servant agrees that in consideration of a wage or other remuneration he will provide his own work and skill in the performance of some service for his master;

2. He agrees, expressly or impliedly, that in the performance of that service he will subject to the other's control in a sufficient degree to make that other master.

3. The other provisions of the contract are consistent with its being a contract of service

All three of these conditions must be fulfilled, if one is not fulfilled the taxpayer is not caught by IR35.

Thus if the taxpayer has a properly drafted contract which includes the necessary references to

• Substitution. - A valid substitution right exists then the taxpayer cannot be an employee.
• Lack of control - The worker is not controlled sufficiently to make him an employee.
• Lack of Mutuality - No obligation on the employer to provide work and the employee to do the work.

And the terms of the contract are carried out in practice, and the certain factors above are present, there is little to fear from the IR 35 legislation.

It is always wise to get your contract reviewed by a professional in this area.

January 2009

© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited.
Image: Trick Or Treat. by peasap

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